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Chantal looks at a different type of SIPP lending

Chantal looks at a different type of SIPP lending

If you are like most people in this country you started thinking about your pension way too late in life, which is hardly surprising with all those other commitments – mortgage, kids, university fees, weddings and not to forget the ageing parents who are increasingly becoming dependant on you to meet their living costs.

The problem

And now, just when you have good income or corporate profits and are reaching the zenith of your career, you find that the annual allowance is restricting you building this pension value. Pensions Flexibility brings more choice of how to access your pension and protect your estate from IHT so that your family might benefit from a larger pension in the future. It has, however, done nothing to allow for the building of your pension value. In fact, if you are a high earner you find your tax relievable contributions further restricted. For the first time in your life you don’t have to think about money or the price tag on the stuff you want to buy.

The solution

At Astute we have developed a Self-Invested Personal Pension (SIPP) which will permit you to gear up your investment, to allow for greater growth, to accelerate your pension pot.

The Astute Corporate SIPP will allow you to borrow against your investment portfolio. You can borrow different percentages of different investment assets up to a maximum of 90%. For example, you can borrow as much as 90% against fixed interest securities but only up to 50% in equities; although overall borrowing cannot exceed 50% of the total net pension value. At attractive levels of interest, in some cases as low as 2.25%, this allows a great opportunity to invest into higher growth assets or even property.

This type of borrowing is available via a range of Private Banks with whom we have exclusive arrangements. There is generally no set up or settlement fee charged and interest is charged on the daily balance outstanding, so access is relatively straight forward.

But surely my own SIPP will allow this I hear you say?

Some SIPP providers name you, as a member, to act as a trustee. If this is the case the answer is “no”, as you would need to opt out of the Consumer Credit Act to facilitate the loan and this is not permitted.

The Astute Corporate SIPP does not have a member Trustee and is therefore not caught by the Consumer Credit Act with the result that this permits the borrowing described above and the ability to give your pension a boost.

Let me give you an example:

Jim is approaching his 58th birthday with a pension valued at £600,000. The investment portfolio of his SIPP is worth £450,000 and is invested in a portfolio with £300,000 equities and £150,000 fixed interest and providing historical returns of 6% per annum.

The Astute Corporate SIPP will allow you to borrow up to 50% of the value of equities and up to 90% of the value of fixed interest securities. This would allow borrowing of approximately £150,000 on the equities (50%) and £135,000 (90%) on the fixed interest, a total of £285,000 at an interest rate of 2.25% or £6,413 per annum.

Let’s say he now invests the £285,000 into a commercial property and expects a rate of return in the region of 7% or £19,950 per annum. This would provide an additional investment return of £13,537 per annum (£19,950 – £6,413). This surplus is to be invested along with the initial investment pot at 6% per annum.

As Jim approaches his 65th birthday, his pension value would be £989,755 with the additional income earned. This is assuming that the commercial property value remains valued at £285,000. If Jim were to decide against the lending and commercial property, his £600,000 pension would instead be valued at £872,601. Jim would have missed out on the opportunity to earn an additional £117,153 or 19.5% of his initial £600,000 pension.

There are risks of course

Of course this type of gearing is not for everyone, as there are significant risks, for example:

Interest rates could rise, pushing up the level of the monthly repayments

The return on the investment could fall reducing or even eliminating the gap between the expected return and the loan repayments

The value of the investment you make, for example a property, could fall in value, below the amount you borrowed, effectively leaving you in negative equity

If you buy a property and the tenant defaults on the rental payments, you will still have to make the loan repayments

As I said, this isn’t for everyone and professional advice should be sought before moving forward

Interested in giving your SIPP a boost?

If you would like more information about this contact Astute Pensions for details or call us direct and we will be happy to provide this for you.